Interdependence and the Gains from Trade
CHAPTER
3
Interdependence and the Gains from Trade
Microeconomics
N. Gregory Mankiw
Premium PowerPoint Slides by Ron Cronovich
© 2009 South-Western, a part of Cengage Learning, all rights reserved
PRINCIPLES OF
In this chapter, look for the answers to these questions:
Why do people – and nations – choose to be economically interdependent? How can trade make everyone better off? What is absolute advantage? What is comparative advantage? How are these concepts similar? How are they different?
1
Interdependence
Every day hair gel from you rely on Cleveland, OH many people cell phone from around from Taiwan the world, most of whom dress shirt you’ve never met, from China to provide you with the goods coffee from and services Kenya you enjoy.
Interdependence
One of the Ten Principles from Chapter 1: Trade can make everyone better off. We now learn why people – and nations – choose to be interdependent, and how they can gain from trade.
INTERDEPENDENCE AND THE GAINS FROM TRADE
3
Our Example
Two countries: the U.S. and Japan Two goods: computers and wheat One resource: labor, measured in hours We will look at how much of both goods each country produces and consumes if the country chooses to be self-sufficient if it trades with the other country
INTERDEPENDENCE AND THE GAINS FROM TRADE
4
Production Possibilities in the U.S.
The U.S. has 50,000 hours of labor available for production, per month. Producing one computer requires 100 hours of labor. Producing one ton of wheat requires 10 hours of labor.
INTERDEPENDENCE AND THE GAINS FROM TRADE
5
Wheat (tons) 5,000 4,000 3,000 2,000 1,000 0
The U.S. PPF
The U.S. has enough labor to produce 500 computers, or 5000 tons of wheat, or any combination along the PPF.
Computers 100 200 300 400 500
6
INTERDEPENDENCE AND THE GAINS FROM TRADE
Wheat (tons) 5,000 4,000 3,000 2,000 1,000 0
The U.S. Without Trade
Suppose the U.S. uses half its labor to
3
Interdependence and the Gains from Trade
Microeconomics
N. Gregory Mankiw
Premium PowerPoint Slides by Ron Cronovich
© 2009 South-Western, a part of Cengage Learning, all rights reserved
PRINCIPLES OF
In this chapter, look for the answers to these questions:
Why do people – and nations – choose to be economically interdependent? How can trade make everyone better off? What is absolute advantage? What is comparative advantage? How are these concepts similar? How are they different?
1
Interdependence
Every day hair gel from you rely on Cleveland, OH many people cell phone from around from Taiwan the world, most of whom dress shirt you’ve never met, from China to provide you with the goods coffee from and services Kenya you enjoy.
Interdependence
One of the Ten Principles from Chapter 1: Trade can make everyone better off. We now learn why people – and nations – choose to be interdependent, and how they can gain from trade.
INTERDEPENDENCE AND THE GAINS FROM TRADE
3
Our Example
Two countries: the U.S. and Japan Two goods: computers and wheat One resource: labor, measured in hours We will look at how much of both goods each country produces and consumes if the country chooses to be self-sufficient if it trades with the other country
INTERDEPENDENCE AND THE GAINS FROM TRADE
4
Production Possibilities in the U.S.
The U.S. has 50,000 hours of labor available for production, per month. Producing one computer requires 100 hours of labor. Producing one ton of wheat requires 10 hours of labor.
INTERDEPENDENCE AND THE GAINS FROM TRADE
5
Wheat (tons) 5,000 4,000 3,000 2,000 1,000 0
The U.S. PPF
The U.S. has enough labor to produce 500 computers, or 5000 tons of wheat, or any combination along the PPF.
Computers 100 200 300 400 500
6
INTERDEPENDENCE AND THE GAINS FROM TRADE
Wheat (tons) 5,000 4,000 3,000 2,000 1,000 0
The U.S. Without Trade
Suppose the U.S. uses half its labor to